Trends in the European Union and Russia: Implications for the United States

The introduction
of the euro in 1999 and the ex­pansion of the European Union
(EU) from 15 to 25 member states in 2004 were heralded by many
Euro­pean leaders as the birth of a new, unified Europe, a
powerful phoenix rising from the ashes of the biggest war in the
history of mankind. In many ways, the EU has been an extraordinary
experiment, the creation of the world's biggest single market, with
the free move­ment of goods, services and peoples across an
ex­tremely diverse continent. The relative stability of the
single currency, and the smooth entry of former com­munist
countries in Eastern and Central Europe into a Western
European-dominated club are undoubtedly impressive achievements,
and it is with an air of con­fidence that the EU is looking to
further expansion in 2007, when Romania and Bulgaria will make it a
group of 27.

However, the
superficial success of the European Union masks major underlying
economic problems, as well as deep political divisions and rising
concern over threats to national sovereignty. The rejection of the
European Constitution in France and Holland in 2005 was a huge
wake-up call to European elites who believed in what is called "the
finality of European integration." The French and Dutch referenda
were symbolic of growing unease among European publics with the
increasingly undemocratic nature of the European project.

This paper
examines both economic and political trends in the European Union
and its giant, unpredict­able neighbor to the East, Russia,
assessing their long-term implications and impact upon U.S.
interests. It explores how the increasing centralization of
politi­cal and economic power in Europe is detrimental not only
to America, but also to the European con­tinent itself. It also
looks at the rise of anti-Ameri­canism in Europe, and the
threat it poses to the Anglo-American special relationship.

Economic Trends in
the European Union

The Economic
State of the EU. Europe's finance ministers are starting to
feel increasingly bullish. Fol­lowing several years of economic
stagnation, the 12-member eurozone has begun to stage an apparent
revival, growing at a faster rate than the United States for the
first time since 2001. Despite an 80 percent rise in oil prices,
eurozone growth is forecast to rise to 2.5 percent for the final
quarter of 2006.

However, the
renewed sense of optimism in Brus­sels may not last into 2007.
There remain deep-seat­ed underlying problems with the
eurozone's largest economies. Over-regulation, draconian tax
regimes, ageing populations, inflexible labor laws, relatively low
levels of public consumption, and limited working hours all
contribute to a Europe that is sig­nificantly underperforming
in the global market­place. The euro may have contributed to
financial stability, but has not stimulated economic growth or
created jobs.[1]

Despite the spin
being put out by Brussels, Europe's long-term economic prognosis is
bleak. A 2005 study by Eurochambres, the Association of European
Chambers of Commerce and Industry,[2] concluded that "the economic
performance of the EU is about 20 years behind that of the
U.S.… [T]he current EU levels in GDP [gross domestic
product], R&D [research and development] investment,
pro­ductivity and employment were already reached by the U.S.
in the late 70s/early 80s." The study found that it would take the
EU until 2023 to reach Amer­ican levels of employment, if
growth exceeded that of the U.S. by 0.5 percent per annum. It would
take the EU a staggering 50 years to reach U.S. produc­tivity
rates; 67 years to attain U.S. levels of income per capita; and 118
years to achieve parity with U.S. levels of research and
development, if Europe con­sistently achieved a half-point
growth advantage over America.

Another study,
by Swedish think tank Timbro,[3] came to similar conclusions
regarding the compara­tive advantage of the U.S. economy over
that of its European competitors. The Timbro analysis,
con­ducted in 2004, found that "per capita GDP is lower in most
of the countries of Europe than in most of the states of the USA."
Italy, France, and Germany had lower per capita GDP than "all but
five states of the USA." Sweden, often held up in Europe as an
example of economic prosperity combined with social liberalism,
"would rank as one of the very poorest states in the Union."

According to
Timbro, the gap in GDP between the United States and the average EU
country is an astonishing 39 percent. The per capita GDP gap
between the U.S. and Europe's richest country stands at 17 percent.
Many U.S. states have GDP levels that greatly outperform those of
Europe's big­gest economies. The state of Connecticut, for
exam­ple, has "almost twice the material prosperity of old
European great powers like France and the U.K." The Timbro report
concludes that "the USA has greatly overtaken Europe to become the
unrivalled leader of the world's economy. Most Americans have a
standard of living which the majority of Europe­ans will never
come anywhere near."

There is growing
frustration across Europe with socialist policies that inhibit
economic creativity. In September 2006, Swedish voters
unceremoniously dumped their Social Democrat government in a
massive rejection of the much touted "Swedish model." As author
Daniel Mitchell points out, "Swe­den has the biggest burden of
government in the developed world," with government spending at 54
percent of GDP, and taxes consuming 55 percent of GDP-the highest
among industrialized nations. Although Sweden boasts an official
unemployment rate of just 6 percent, the real figure is between 15-
20 percent.[4]

Europe also
remains wedded to protectionist policies that raise food prices,
harm producers in developing countries, and weaken European
com­petitiveness in global markets. The EU's Common
Agricultural Policy (CAP) remains the greatest bar­rier to free
trade in the world. The CAP is a vast sys­tem of farm subsidies
that benefits many of Europe's richest farmers at the expense of
producers in the Third World. It has been described by the British
Ambassador to Poland as "the most stupid, immoral state-subsidized
policy in human history, give or take communism."[5] The CAP
accounts for a stag­gering 40 percent of the EU's 100 billion
euro bud­get, and European taxpayers are forced to pay over 80
billion euros in subsidies and higher food costs.[6] The biggest
beneficiary has been France, whose farmers receive up to
one-quarter of EU agricultural subsidies, amounting to over 150
billion euros between 1994 and 2003.[7]

A recently
released Organisation for Economic Co-operation and Development
(OECD) report stat­ed that a 50 percent cut in global trade
tariffs and subsidies would add $44 billion to the world
econ­omy.[8] The World Bank has estimated that a
success­ful conclusion to the Doha talks (where the CAP is the
main obstacle) could give a $300 billion boost to the world economy
over the next ten years.[9]

Italy:
The Sick Man of Europe. Italy's economy in many ways
encapsulates the broader long-term economic problems facing the
European Union. The Economist Intelligence Unit's(EIU's) latest
report on Italy's economic growth performance describes it as "the
worst among the EU member states in the last 10-15 years. After
expanding by just 0.1 percent in 2003 and by 0.9 percent in 2004,
GDP rose by a mere 0.1 percent in 2005."[10] The EIU forecasts that
Italy's gross domestic product will grow at most by just 1.5
percent in 2006-2007. Italy's budget deficit is expected to rise to
4 to 4.5 percent of GDP in 2006-2007, significantly above the 3
percent ceil­ing set by the EU Stability and Growth Pact.[11] To
compound matters further, Rome's public debt stands at 106 percent
of annual GDP, forcing the Italian government to spend 4.6 percent
of GDP ($79 billion) per year just to service it. In the face of
mounting competition from Asia, Italy's share of world trade has
fallen from 4.6 percent in 1995 to just 2.7 percent in 2005.[12]

The long-term
prognosis for Italy is exceedingly gloomy, with poor demographics
adding to prob­lems of heavy debt and weak competitiveness in
global markets. Italy's population is among the old­est in
Europe, with a birthrate of just 1.3 children per woman.[13]
Italy has the lowest employment rate among its working-age
population in the entire European Union, at just 58 percent. Since
the intro­duction of the euro in 1999, unit labor costs have
climbed by 10 percent.[14]

It is doubtful
that the new Italian government, headed by socialist Romano
Prodi-held political hostage by the Communists and powerful trade
union interests-will have the political will, vision, or ability to
implement the market reforms neces­sary to reverse Italy's
long-term economic decline. Prodi's pledge to reverse laws
introduced by former Prime Minister Silvio Berlusconi's government
to increase competitiveness in the labor market will only further
weaken the Italian economy, and send completely the wrong
signal.

The defeat of
the enigmatic Berlusconi, Italy's longest-serving Prime Minister
since Mussolini, brings to an end a five-year period of relative
polit­ical stability marred by economic decline in a
coun­try that has suffered through nearly 60 governments since
the Second World War. His successor, once described by the somber
Frankfurter Allgemeine Zei­tung as "the chief bore" at
EU summits,[15] and who has been appropriately described
by cynics as a glo­rified "undertaker," is now tasked with
bringing to life an Italian economy that is clearly on its
death­bed. Like the hapless Sisyphus pushing a boulder up a
hill, Prodi's multi-colored and possibly short-lived coalition will
almost certainly find it an impos­sible challenge. What Italy
needs is an economic revolution with true liberal market reform,
rather than more empty rhetoric and state intervention.
Unfortunately a Prodi administration is likely to veer heavily
toward the latter.

How Britain
Prospers Outside the Eurozone. Italy is a prime example of a
eurozone member whose economy has declined since the introduction
of the euro. Great Britain is a perfect example of a nation that
has thrived and prospered without the European single currency,
despite the gloomy pre­dictions of Brussels bureaucrats who had
warned of British isolation and decline. According to the OECD, the
U.K. is the world's top destination for foreign direct investment
(FDI), overtaking the United States in 2006. FDI flows into Britain
rose from $56.3 billion in 2004 to $164.5 billion in 2006.[16]
Investment is pouring into the U.K. from the Far East: London alone
has attracted 15 percent of all Chinese investment into Europe
since 2002.[17]

As Europe's
biggest financial center, the City of London has boomed since the
introduction of the euro, despite Britain's refusal to give up the
pound. London accounts for half of European investment banking
activity, 20 percent of global cross-border bank-lending, and 31
percent of global foreign exchange turnover. Nearly 50 percent of
Europe's pri­vate equity assets are managed from London, as
well as over 75 percent of Europe's hedge fund assets.[18]
Many of the world's largest international non-U.K. banking
operations are now run primarily from Lon­don, including German
flagship Deutsche Bank and French giant BNP Paribas. Since March
2005, 152 international companies have joined the London Stock
Exchange (LSE) compared to 54 that have joined the New York Stock
Exchange and NASDAQ combined.[19] The LSE now accounts for
70 percent of all European IPOs (initial public offerings).[20]

Economic growth
in Britain has consistently out­paced that of the eurozone
countries for the past ten years. Her economy has grown by 28
percent since 1997 (a compound rate of 2.8 percent).[21]
The U.K. is now ranked as the freest large-size economy in the
world by the Heritage Foundation's Index of Eco­nomic
Freedom, ahead of the United States.[22] According to OECD figures,
Britain has achieved a higher GDP per capita than Germany, France,
or Ita­ly (it was 46 percent lower than West Germany's and 41
percent lower than France's in 1977). Oxford Economic Forecasting
predicts that by the year 2030, Britain will overtake Germany as
Europe's largest economy.[23] Within the G-8, Britain is now second
only to the United States in terms of national income per capita.[24]
Employment in the U.K. has risen by 15 percent (3.5 million people)
since 1993, and unemployment has fallen from 10.5 percent to 5
percent in the same period.[25] Britain's working
population expanded by 450,000 (1.6 percent) between 2005 and
2006.[26]

There are,
however, storm clouds gathering on the horizon for the British
economy, largely due to an increase in government regulation,
spending, stealth taxation, and general red tape. While Chancellor
of the Exchequer Gordon Brown has been careful not to undo the
major reforms of the Thatcher Revolu­tion of the 1980s, and
largely built upon them, he has been steadily increasing the level
of government intervention in the economy, which will have
dam­aging long-term implications for the U.K. and which may
well come to haunt him if he becomes Prime Minister. British
government spending as a propor­tion of GDP has risen by 8
points since 2000, a jump from 37.5 percent to 45.6 percent, just
below that of Germany's 46.1 percent, and the eurozone's average of
47.3 percent.[27] In addition, Britain continues to suffer
from poor productivity levels. Output per hour is 15 percent higher
in the United States, and 19 percent higher in France.[28]

Political Trends in
the European Union

Long-term
economic trends in the European Union do not bode well for the
United States. Slug­gish growth and increasing protectionism
pose long-term threats to U.S. interaction with the global economy.
Europe remains America's most important trading partner with
U.S.-EU trade worth almost $1 trillion per year,[29] and the U.S. has
a huge stake in the economic performance of the EU.

If the economic
prognosis for Europe looks gloomy, the political outlook for Europe
is even darker. There are many concerns from the perspec­tive
of Washington. The top three threats to U.S. interests are the
increasing centralization of political power in Europe and its
implications for U.S.-Euro­pean relations; the stunning rise of
anti-American­ism across Europe, even in America's closest
allies, such as Great Britain; and the growing threat to U.S. and
international security from Islamic extremism in European
countries.

The fundamental
dynamics of the transatlantic relationship have been transformed in
the post-9/11 era, and will require a shift in U.S. strategic
think­ing. The United States should reassess its
tradition­al support for ever-closer integration in Europe, and
adopt a more "Eurosceptic" approach. Washington must also recognize
the huge long-term threat to U.S.-led alliances posed by the
exponential growth of anti-Americanism, particularly among younger
Europeans who do not share the older generation's memories of
America's defense of Europe in the Cold War and World War II. If
the growth in oppo­sition to U.S. foreign policy continues in
Europe, America may be left with no significant transatlantic
allies two to three decades from now.

The explosion of
Islamic militancy in Europe must also be addressed as a top
priority for the U.S. It is no coincidence that the 9/11 attacks,
as well as the foiled plot to blow up U.S. airliners over the
Atlantic Ocean in August 2006, were meticulously planned on
European soil. In the case of the attempted airline attacks, as
well as the July 2005 London bombings, the suicide bombers were
Brit­ish citizens, many of whom were born in the U.K.

Britain, for
years a safe haven for Islamic militants across the world, has
become a hornet's nest of Islamic terrorists. The United States
must apply concerted pressure on the U.K. and other major
European countries with large Muslim populations to crack down on
Islamic extremists, who through the visa waiver program have easy
access to the United States. It will take extensive U.S.-European
cooperation to ultimately defeat the scourge of ter­rorism in
an increasingly globalized world.

The Rise of a
Federal Europe. The rejection of the European Constitution by
voters in France and Holland in 2005 was the best news Europe has
had in years. The French and Dutch referenda derailed a stampeding
juggernaut, steered by bureaucrats in Brussels, heading toward the
destination of "ever closer union." The Constitution, a blueprint
for the creation of a federal Europe, posed the greatest threat to
national sovereignty in Europe since World War II. Its defeat
was a momentous event- a popular rejection of the imposition of
power from above without a democratic mandate.

That is the good
news. The bad news is that the Brussels establishment, as well as
many of Europe's national leaders, wish to resurrect the
Constitution, and seek to push many of its goals through the back
door. Despite huge divisions within the EU25, the European Union
Common Foreign and Security Policy continues to gain strength, as
does the cre­ation of a European Union standing army.

German Chancellor
Angela Merkel has called for the resurrection of the Constitution.
No less than 15 countries have ratified the Constitution, thirteen
of them without a referendum.[30] Belgian Prime
Minis­ter Guy Verhofstadt has just published a book
enti­tled "The United States of Europe." A pro-federalist axis
has been formed between Paris, Berlin, Madrid, and Rome, all led by
strong supporters of further political integration in Europe.

Defending a
Europe of Nation-States. The U.S.- EU divide over the war on
terrorism, sharply illus­trated by divisions over rendition and
the detention facility at Guantanamo Bay, is likely to grow wider
in the months and years to come. There exist irrec­oncilable
differences between Washington and Brussels both with regard to how
to confront the threat of global terrorism and with regard to the
nature of the conflict the West is engaged in. Many leading EU
bureaucrats simply do not grasp the magnitude of the al-Qaeda
threat. As a senior Euro­pean Union official recently remarked,
"[W]e do not have a war on terror,"[31] an extraordinary statement
considering the fact there have been three major ter­rorist
attacks on European soil in the past three years, in London,
Madrid, and Istanbul.

However, tensions
between the United States and the European Union and Council of
Europe should not weaken the ability of Washington to cooperate
effectively with individual European nation-states, many of which
have strongly supported U.S. efforts in the war on terrorism.
Rendition has proved a highly effective tool in the war against
al-Qaeda and has pulled hundreds of extremely dangerous
terror­ist suspects off the streets. In all probability, many
lives, both American and European, have been saved by this
practice.

The United States
must continue to pursue aggressively those who threaten the
security of the free world and should continue to work closely with
allies in the fight against Islamic terrorist groups. Most
importantly, the U.S. must resist the temptation to blunt its most
effective weapons in the face of criticism from the EU, the U.N.,
and oth­er supra-national institutions.

The increasing
political centralization of Europe poses a fundamental threat to
U.S. interests. Wash­ington must back the principle of national
sover­eignty in Europe, and President Bush should welcome last
year's defeat of the European Constitu­tion in key EU member
states such as France and Holland as an important democratic
rejection by European voters of the further centralization of power
on that continent.

The United States
works most effectively when it cooperates directly with national
governments, em­ploying a "coalition of the willing" strategy.
Europe is not, and never has been, a united political entity, and
U.S. policy must support a Europe of nation-states. Washington's
political capital in Europe must be spent not in Brussels or
Strasbourg, but in the na­tional capitals, where America's
strongest allies are to be found.

The Growth of
Anti-Americanism: A Threat to the Special Relationship. The
Anglo-American special relationship today faces one of its greatest
challenges since World War II-rising public oppo­sition in the
U.K. to Britain's close ties to the United States. The recent
YouGov/Spectator poll of British attitudes toward
U.S.-U.K. leadership of the war on terrorism should be major
cause for concern for policymakers in both Washington and London.[32]
While just 12 percent of respondents believed that Britain should
soften its foreign policy in response to the terrorist threat (a
specific demand made by British Muslim leaders), 79 percent
disagreed with the view that Britain and America were "winning the
war against terror[ism]." Only 14 percent of those surveyed
supported the view that Britain should "pursue a foreign policy
agenda closer to that of the United States"; and 45 percent
believed that "Britain should position her foreign policy closer to
that of the European Union."

The poll
represents a sea change in attitudes among a British public that is
traditionally pro-Atlanticist and skeptical of European
integration. In part, the survey is a reaction against an unpopular
Prime Minister, Tony Blair, who is closely aligned with Washington
and whose standing international­ly greatly eclipses his
domestic image. Blair's approval rating remains at less than 30
percent. It is also, however, representative of a broader rejection
of U.S. leadership on the world stage, and a rising
anti-Americanism on both the left and right of the political
spectrum.

Several other
recent polls conducted in the U.K. have produced negative findings
in relation to Brit­ish perceptions of U.S. foreign policy, and
Downing Street's support for it. A July ICM poll for The
Guard­ian found that 63 percent of Britons thought the U.K.
was "too close to the USA."[33] In a June YouGov/Daily
Telegraph poll, 77 percent of those polled disagreed with the
view that the United States was "a beacon of hope for the world,"
and 58 percent supported the description of America as "an imperial
power."[34] Sixty-seven percent expressed "little or
very little confidence" in "the ability of the United States to
deal wisely with present world problems." Sixty-five percent of
respondents sup­ported the view that U.S. policies made the
world "a somewhat or much worse place to live in."

Worryingly,
anti-American views are now as widespread or even more prevalent in
the U.K. than they are in some continental European countries with
a far deeper tradition of public skepticism toward the U.S. In the
latest Financial Times/Harris poll of opinion in five of the
EU's largest member states, a staggering 36 percent of Britons
surveyed described the United States as "the greatest threat to
global security." (Just 19 percent of British respon­dents
cited Iran as the world's greatest threat). In contrast, 28 percent
of Frenchmen, 21 percent of Italians, and 24 percent of Germans
shared this view. Only in Spain was the negative perception of U.S.
foreign policy greater than in Britain.[35]

If this trend
continues, with the British public moving further away from the
United States and sliding closer to the European Union on major
international issues, the long-term future of the spe­cial
relationship will be placed in jeopardy. In many ways, Britain is
at a turning point in its history, faced with a choice between
further political, legal, mili­tary, and economic integration
with the EU, or a deepening of its alliance with the United States
and other English-speaking allies such as Australia. As Tony Blair
discovered with the Iraq war, the two competing visions are largely
incompatible.

From the U.S.
point of view, it would be a geo-strategic disaster if Britain
leaned toward Brussels rather than Washington. The most prominent
casu­alty of a fully developed EU Common Foreign and Security
Policy would be the Anglo-U.S. special relationship, forcibly
consigned to the scrap heap of history. America's closest ally
would be unable to operate an independent foreign policy and stand
alongside the United States where and when it chose to do so. The
consequences for America would be hugely damaging.

For Britain,
there is much to lose from a weakening of the Anglo-American
alliance-the further loss of national sovereignty, the diminishment
of British glo­bal power and influence, the loosening of
defense and intelligence ties, and a weakening of the close-knit
financial, trade, and investment relationship.

For both U.S. and
U.K. policymakers and politi­cians, the defense of the
Anglo-American special relationship should be a top priority. On
the U.S. side, public diplomacy in the U.K. should be greatly
stepped up by the Bush Administration. Little has been done so far
to effectively project and commu­nicate America's foreign
policy message to British and European audiences. In London, the
Blair gov­ernment must do more to explain how the alliance with
America enhances Britain's national security rather than undermines
it, and why the special rela­tionship is a two-way street that
brings Britain huge benefits. At the same time the British
government should not seek to undermine the alliance with America
by supporting further political or defense integration in
Europe.

Britainand the Rise of Islamic Extremism. The 2005
London bombings and the thwarted 2006 air­line attacks prompted
growing awareness within Europe regarding the threat posed by
homegrown Islamic militants working in conjunction with
for­eign al-Qaeda terrorists. The British intelligence
ser­vice MI6 believes that there are 400 to 600 al-Qaeda
terrorist suspects in the U.K., some of whom have been trained in
camps in Afghanistan and Paki­stan.[36] Although the London
bombings were car­ried out by British-born terrorists, the
bombers were almost certainly part of a larger international
network. The latest evidence suggests the attacks were probably a
sophisticated al-Qaeda operation, masterminded by experienced
international opera­tives with local extremists acting as foot
soldiers.

The scale and
complexity of the problem involv­ing young Islamic extremists
in Britain was high­lighted in a major British Foreign
Office/Home Office study, "Young Muslims and Extremism."[37]
Terrorist organizations such as al-Qaeda have found a fertile
hunting ground in the U.K., where half of Muslims are under the age
of 25, and where there is widespread opposition to the
U.S.-British-led war on terrorism.

The report
revealed that extremist groups are secretly recruiting
well-educated, affluent Muslims from British universities, in
addition to impover­ished, underachieving Muslims through
mosques and prisons. The British government study con­cludes
that "intelligence indicates that the number of British Muslims
actively engaged in terrorist activity, whether at home or abroad,
or supporting such activity is extremely small and estimated at
less than 1%." This translates, however, into potentially 16,000
British Muslims out of a total population of 1.6 million. An
estimated 10,000 U.K. Muslims attended an extremist conference in
2003.

The study cites a
series of polls of British Muslim opinion on foreign policy issues,
which raise con­siderable cause for concern regarding the
loyalties of some U.K. Muslims in the global war on terror­ism.
While the vast majority of British Muslims con­demned the 9/11
attacks, 15 percent supported them in a November 2001 BBC poll. In
the same poll, 80 percent believed that military action against
Afghanistan was unjustified, and 24 percent approved of "British
Muslims going to fight America and its allies in Afghanistan."[38]

Another BBC poll,
in December 2002, showed that 44 percent of British Muslims thought
that fur­ther attacks by al-Qaeda were "justified on grounds
that Muslims are being killed by America and its allies using
American weapons." Fifty-six percent of respondents stated that the
USA and its allies were unjustified in blaming Osama bin Laden's
al-Qaeda group for the attacks in America on September 11. Seventy
percent of respondents disagreed with the view that "the war on
terror is not a war against Islam," and 26 percent of those polled
did not "feel very or fairly loyal/patriotic towards Britain."[39]

The poll figures
make disturbing reading. While waging war against al-Qaeda
internationally, the United Kingdom must at the same time redouble
its efforts to defeat Islamic extremism on home soil. The U.K. has
for far too long provided a safe haven for Islamic militants from
across the Middle East and North Africa. Tougher anti-terrorist
legislation and stronger immigration and asylum laws are required
to help prevent further terrorist attacks on British cities.

The London
bombers were driven above all by an evil doctrine of hatred and
loathing, based on an extreme misinterpretation of Islam, which has
as its ultimate goal the destruction of liberal democracy across
the world, whether it be in the West or the Middle East, and the
establishment of a Muslim caliphate.[40] It is an ideology that
cannot be appeased or negotiated with, but which must be defeated.
The terrorist bombings in London, and the attacks of 9/11 in
Washington and New York, were not the consequences of U.S. or
British foreign policy, but part of an epic confrontation between
the forces of barbarism and the forces of civilization.

The British
government must pursue a policy of zero tolerance toward Islamic
extremism, which is a deadly threat to the fabric of British
society. Foreign Islamic clerics who preach violence and hatred
should be deported from Britain, and terrorist sus­pects must
be extradited to friendly countries that request it, especially the
United States.

Britain also
clearly needs a new generation of Muslim leaders, untainted by
association with or sympathy for Islamic extremism, and who are
proud of their British identity. They must be willing to condemn
terrorism unequivocally in all its forms, and help root out
extremists from Muslim commu­nities. Their role in helping
defeat Islamic terrorism will be invaluable.

Economic and
Political Trends in Russia

Fifteen years
since the inglorious fall of the Soviet Empire, Russia remains a
huge foreign policy chal­lenge for the United States. President
Vladimir Putin, hugely popular with the Russian people, has
successfully restored both economic and political stability to a
country that had been on its knees at the end of the last
millennium. As a mark of its growing confidence following soaring
oil prices, the Russian government repaid $22.5 billion to the
Par­is Club of creditor nations in August 2006, 14 years ahead
of schedule, eliminating one-third of its total $70 billion foreign
debt.[41] A resurgent and newly confident Russia
hosted the G-8 summit in St. Petersburg in July 2006.

With 27 percent
of the world's gas reserves, and 6 percent of global oil reserves,
Russia is now the world's second-largest oil exporter, and
state-owned Gazprom is the world's second-biggest energy firm by
market value.[42] Russia supplies one-third of Europe's gas
needs, and has accumulated foreign currency reserves of $277
billion (the third largest in the world). Russia currently has a
balance of pay­ments surplus of $100 billion, or 12 percent of
GDP.[43] Russia's Stabilization Fund, established
as a safeguard against a financial meltdown, is now worth nearly
$80 billion.[44] Foreign investment is pouring into the
country, attracted by a well-educat­ed, skilled, and relatively
cheap workforce, helping fuel an annual growth rate of over 6
percent. FDI in the first half of 2006 amounted to $14 billion,
near­ly equal to the total for the whole of 2005.[45]

Russia's revival,
however, disguises some major long-term economic problems. The
economy is heavily dependent upon oil and natural gas
reve­nues, and will be hit hard by any significant drop in oil
prices. Demographic trends also militate against an optimistic
long-term economic prognosis for the Russian economy. Russia's
population has fallen by six million since the collapse of the
Soviet Union and now stands at 143 million. With its population
dropping by 700,000 a year, The Economist predicts there
will be fewer than 100 million Russians by the middle of the 21st
century.[46]

Leading
demographics scholar Nicholas Eber­stadt has observed that
"Russia's current depopula­tion bears all the trappings of a
"demographic shock," reflecting abrupt and violent changes in the
nation's vital rates in the immediate wake of a momentous,
system-shattering, historic event. This shock is probably not just
a temporary disturbance: There are good reasons to believe that
Russia's pop­ulation trend defines a new norm for the
country."[47] Eberstadt notes that Russia has a
staggeringly high death rate of 170 deaths for every live 100
births, in contrast to the European average of 103 deaths for every
100 births.[48] Russia's male life expectancy has fallen
by five years since the 1960s, and now stands at just 59,
comparable to that of many Third World countries.[49] According to the
World Health Organi­zation, Russia ranks 127th in the world in
terms of global health care standards.[50]

Political
considerations also weaken Russia's long-term market appeal.
Investor confidence will be ulti­mately harmed by the
increasing heavy-handedness of the Kremlin. Russia has not quite
returned to the dark days of Soviet-style totalitarianism, but it
is increasingly an authoritarian regime that acts ruth­lessly
to protect its interests-what the Financial Times calls "a
managed democracy."[51] Unlike during the Cold War, Russians have
freedom to travel abroad and benefit from the fruits of global
capitalism. Few Rus­sians are willing, though, to openly
confront the iron fist of President Putin's leadership.

Putin has
weakened the powers of parliament, sti­fled the media, neutered
the power of regional gov­ernments, and reduced the
independence of the judiciary. Businessmen who pose a challenge to
Rus­sia's political elite have had to face the consequences.
Mikhail Khodorkovsky, once the head of Russia's fore­most oil
company, Yukos, now resides in a Siberian prison camp.[52]
Non-governmental organizations, especially foreign groups, have
faced a huge crack­down. Freedom House ranks Russia 168th out
of 192 countries in terms of political rights, while
Transpar­ency International places Russia 126th out of 159
nations in its ranking. In terms of judicial indepen­dence, the
World Economic Forum puts Russia in 84th position out of 102
countries, and ranks it 88th out of 108 for property rights.[53]

As Vice President
Dick Cheney noted in his pow­erful remarks to the 2006 Vilnius
Conference:

In Russia today,
opponents of reform are seeking to reverse the gains of the last
de­cade. In many areas of civil society-from religion and the
news media, to advocacy groups and political parties-the
govern­ment has unfairly and improperly restricted the rights
of her people. Other actions by the Russian government have been
coun­terproductive, and could begin to affect re­lations
with other countries. No legitimate interest is served when oil and
gas become tools of intimidation or blackmail, either by supply
manipulation or attempts to mo­nopolize transportation. And no
one can justify actions that undermine the territorial integrity of
a neighbor, or interfere with democratic movements. Russia has a
choice to make. And there is no question that a re­turn to
democratic reform in Russia will generate further success for its
people and greater respect among fellow nations.
[54]

While flexing
muscle at home, Putin is also project­ing power abroad. Even
with nuclear weapons, Rus­sia's days as a global superpower are
long gone. Russia still, however, ranks as one of the four most
powerful countries in the world in terms of global power
pro­jection after the United States (the others are Britain,
France, and China). And she is increasingly aligning herself with
America's biggest enemies, including Mahmoud Ahmadinejad of Iran
and Venezuela's Hugo Chavez. This is part of a broader strategy to
strengthen Russian strategic influence on the world stage. Moscow
is helping to build Iran's $1 billion nuclear reactor at Bushehr,
and in December 2005 agreed to a $1 billion arms sale to Tehran,
including $700 million worth of surface-to-air missiles. Russia
sold the Iranian regime $2.7 billion worth of arms between 1994 and
2004.[55] Russia recently signed a $3 billion deal
with Venezuela to supply 24 Su-30 advanced fighter jets, as well as
53 helicopters- despite strong objections from Washington.[56]

Washington is
right to be concerned by develop­ments in Russia. While it is
an increasingly impor­tant market for Western goods and
investment, Russia remains a strategic competitor and is
evolv­ing into an energy superpower with pretensions of
grandeur on the world stage. Moscow's growing military support for
Tehran and Caracas does not bode well for the future. In addition,
strongman President Putin's departure in 2008 may give way to an
even more authoritarian regime in the Kremlin, further reinforcing
the need for the United States and other Western allies to maintain
the pressure for reform and human rights in Moscow.

Conclusion

Europe is a
continent in great transition, uncer­tain of the course it must
take in the 21st century. There is a battle taking place for the
heart and soul of the future of the European Union. Europe can move
in one of two directions-toward the creation of an artificial
superstate, a political rival to the United States, or it may
return to a Europe of nation-states, where national governments
retain control of foreign and domestic policy. At the moment,
Europe is somewhere in between.

Unfortunately,
despite the rejection of the Constitu­tion, the pendulum is
swinging toward closer integra­tion. Increasingly, the EU is
acting as a common entity on the international stage, whether it be
at the United Nations, in negotiations with Iran, or in
intervention in the Israeli-Hezbollah conflict. This does not mean
that Europe is united-far from it-but there is undoubtedly a
growing willingness to develop con­sensus positions on big
international issues.

Nothing is ever
certain in history. The drive toward ever-closer union can still be
halted. A great deal will depend upon how Britain moves with regard
to Europe if the largely Eurosceptic Conser­vative Party takes
the reins of power in 2009 or 2010, the year of the next British
election. Britain, Poland, the Baltic states, and the Scandinavian
countries may form a counter-weight of power within the EU to the
dominance of Germany and France. Possible Turkish entry to the EU a
decade from now would fundamentally alter the nature of the
organization, and would greatly complicate the creation of a united
political entity in Europe. Fur­ther, economic problems in the
eurozone could prompt defections from the single currency. Italy
would undoubtedly be the first to jump ship if the euro hit an
iceberg.

Economic
integration is essentially a politically driven project, and any
crack in the edifice of the single currency would have huge
implications for political integration. It is no coincidence that
the most successful economies in Europe today-Brit­ain,
Switzerland, Norway for example-remain outside the eurozone.

In other words,
there is still all to play for in Europe. The continent faces a
stark choice between a Europe based around the principles of free
mar­kets, free trade, limited government, national
sover­eignty, and decentralized power, and a federal Europe
that worships at the trough of socialism and supra-nationalism. It
is to be hoped that Europe will choose the former, a formula that
worked for centu­ries as a recipe for success for Europe's
great powers.

It is not only
the future of Europe that is at risk, but also the future of the
Anglo-American special relationship, NATO, and the broader
transatlantic alliance. The United States has a stake in the future
direction of Europe and must develop a coherent strategy toward
Europe that reflects fundamental U.S. interests.

Nile Gardiner is Director
of the Margaret Thatcher Center for Freedom at The Heritage
Foundation. This lecture was delivered at the Durell Colloquium on
"The Role of Markets and Governments in Pursuing the Com­mon
Good" at Hillsdale College's Center for the Study of Monetary
Systems and Free Enterprise, in Hillsdale, Michigan, on October 28,
2006.

Political Trends in
the European Union

Long-term
economic trends in the European Union do not bode well for the
United States. Slug­gish growth and increasing protectionism
pose long-term threats to U.S. interaction with the global economy.
Europe remains America's most important trading partner with
U.S.-EU trade worth almost $1 trillion per year,[29] and the U.S. has
a huge stake in the economic performance of the EU.

If the economic
prognosis for Europe looks gloomy, the political outlook for Europe
is even darker. There are many concerns from the perspec­tive
of Washington. The top three threats to U.S. interests are the
increasing centralization of political power in Europe and its
implications for U.S.-Euro­pean relations; the stunning rise of
anti-American­ism across Europe, even in America's closest
allies, such as Great Britain; and the growing threat to U.S. and
international security from Islamic extremism in European
countries.

The fundamental
dynamics of the transatlantic relationship have been transformed in
the post-9/11 era, and will require a shift in U.S. strategic
think­ing. The United States should reassess its
tradition­al support for ever-closer integration in Europe, and
adopt a more "Eurosceptic" approach. Washington must also recognize
the huge long-term threat to U.S.-led alliances posed by the
exponential growth of anti-Americanism, particularly among younger
Europeans who do not share the older generation's memories of
America's defense of Europe in the Cold War and World War II. If
the growth in oppo­sition to U.S. foreign policy continues in
Europe, America may be left with no significant transatlantic
allies two to three decades from now.

The explosion of
Islamic militancy in Europe must also be addressed as a top
priority for the U.S. It is no coincidence that the 9/11 attacks,
as well as the foiled plot to blow up U.S. airliners over the
Atlantic Ocean in August 2006, were meticulously planned on
European soil. In the case of the attempted airline attacks, as
well as the July 2005 London bombings, the suicide bombers were
Brit­ish citizens, many of whom were born in the U.K.

Britain, for
years a safe haven for Islamic militants across the world, has
become a hornet's nest of Islamic terrorists. The United States
must apply concerted pressure on the U.K. and other major
European countries with large Muslim populations to crack down on
Islamic extremists, who through the visa waiver program have easy
access to the United States. It will take extensive U.S.-European
cooperation to ultimately defeat the scourge of ter­rorism in
an increasingly globalized world.

The Rise of a
Federal Europe. The rejection of the European Constitution by
voters in France and Holland in 2005 was the best news Europe has
had in years. The French and Dutch referenda derailed a stampeding
juggernaut, steered by bureaucrats in Brussels, heading toward the
destination of "ever closer union." The Constitution, a blueprint
for the creation of a federal Europe, posed the greatest threat to
national sovereignty in Europe since World War II. Its defeat
was a momentous event- a popular rejection of the imposition of
power from above without a democratic mandate.

That is the good
news. The bad news is that the Brussels establishment, as well as
many of Europe's national leaders, wish to resurrect the
Constitution, and seek to push many of its goals through the back
door. Despite huge divisions within the EU25, the European Union
Common Foreign and Security Policy continues to gain strength, as
does the cre­ation of a European Union standing army.

German
Chancellor Angela Merkel has called for the resurrection of the
Constitution. No less than 15 countries have ratified the
Constitution, thirteen of them without a referendum.[30]
Belgian Prime Minis­ter Guy Verhofstadt has just published a
book enti­tled "The United States of Europe." A pro-federalist
axis has been formed between Paris, Berlin, Madrid, and Rome, all
led by strong supporters of further political integration in
Europe.

Defending a
Europe of Nation-States. The U.S.- EU divide over the war on
terrorism, sharply illus­trated by divisions over rendition and
the detention facility at Guantanamo Bay, is likely to grow wider
in the months and years to come. There exist irrec­oncilable
differences between Washington and Brussels both with regard to how
to confront the threat of global terrorism and with regard to the
nature of the conflict the West is engaged in. Many leading EU
bureaucrats simply do not grasp the magnitude of the al-Qaeda
threat. As a senior Euro­pean Union official recently remarked,
"[W]e do not have a war on terror,"[31] an extraordinary statement
considering the fact there have been three major ter­rorist
attacks on European soil in the past three years, in London,
Madrid, and Istanbul.

However,
tensions between the United States and the European Union and
Council of Europe should not weaken the ability of Washington to
cooperate effectively with individual European nation-states, many
of which have strongly supported U.S. efforts in the war on
terrorism. Rendition has proved a highly effective tool in the war
against al-Qaeda and has pulled hundreds of extremely dangerous
terror­ist suspects off the streets. In all probability, many
lives, both American and European, have been saved by this
practice.

The United
States must continue to pursue aggressively those who threaten the
security of the free world and should continue to work closely with
allies in the fight against Islamic terrorist groups. Most
importantly, the U.S. must resist the temptation to blunt its most
effective weapons in the face of criticism from the EU, the U.N.,
and oth­er supra-national institutions.

The increasing
political centralization of Europe poses a fundamental threat to
U.S. interests. Wash­ington must back the principle of national
sover­eignty in Europe, and President Bush should welcome last
year's defeat of the European Constitu­tion in key EU member
states such as France and Holland as an important democratic
rejection by European voters of the further centralization of power
on that continent.

The United
States works most effectively when it cooperates directly with
national governments, em­ploying a "coalition of the willing"
strategy. Europe is not, and never has been, a united political
entity, and U.S. policy must support a Europe of nation-states.
Washington's political capital in Europe must be spent not in
Brussels or Strasbourg, but in the na­tional capitals, where
America's strongest allies are to be found.

The Growth of
Anti-Americanism: A Threat to the Special Relationship. The
Anglo-American special relationship today faces one of its greatest
challenges since World War II-rising public oppo­sition in the
U.K. to Britain's close ties to the United States. The recent
YouGov/Spectator poll of British attitudes toward
U.S.-U.K. leadership of the war on terrorism should be major
cause for concern for policymakers in both Washington and London.[32]
While just 12 percent of respondents believed that Britain should
soften its foreign policy in response to the terrorist threat (a
specific demand made by British Muslim leaders), 79 percent
disagreed with the view that Britain and America were "winning the
war against terror[ism]." Only 14 percent of those surveyed
supported the view that Britain should "pursue a foreign policy
agenda closer to that of the United States"; and 45 percent
believed that "Britain should position her foreign policy closer to
that of the European Union."

The poll
represents a sea change in attitudes among a British public that is
traditionally pro-Atlanticist and skeptical of European
integration. In part, the survey is a reaction against an unpopular
Prime Minister, Tony Blair, who is closely aligned with Washington
and whose standing international­ly greatly eclipses his
domestic image. Blair's approval rating remains at less than 30
percent. It is also, however, representative of a broader rejection
of U.S. leadership on the world stage, and a rising
anti-Americanism on both the left and right of the political
spectrum.

Several other
recent polls conducted in the U.K. have produced negative findings
in relation to Brit­ish perceptions of U.S. foreign policy, and
Downing Street's support for it. A July ICM poll for The
Guard­ian found that 63 percent of Britons thought the U.K.
was "too close to the USA."[33] In a June YouGov/Daily
Telegraph poll, 77 percent of those polled disagreed with the
view that the United States was "a beacon of hope for the world,"
and 58 percent supported the description of America as "an imperial
power."[34] Sixty-seven percent expressed "little or
very little confidence" in "the ability of the United States to
deal wisely with present world problems." Sixty-five percent of
respondents sup­ported the view that U.S. policies made the
world "a somewhat or much worse place to live in."

Worryingly,
anti-American views are now as widespread or even more prevalent in
the U.K. than they are in some continental European countries with
a far deeper tradition of public skepticism toward the U.S. In the
latest Financial Times/Harris poll of opinion in five of the
EU's largest member states, a staggering 36 percent of Britons
surveyed described the United States as "the greatest threat to
global security." (Just 19 percent of British respon­dents
cited Iran as the world's greatest threat). In contrast, 28 percent
of Frenchmen, 21 percent of Italians, and 24 percent of Germans
shared this view. Only in Spain was the negative perception of U.S.
foreign policy greater than in Britain.[35]

If this trend
continues, with the British public moving further away from the
United States and sliding closer to the European Union on major
international issues, the long-term future of the spe­cial
relationship will be placed in jeopardy. In many ways, Britain is
at a turning point in its history, faced with a choice between
further political, legal, mili­tary, and economic integration
with the EU, or a deepening of its alliance with the United States
and other English-speaking allies such as Australia. As Tony Blair
discovered with the Iraq war, the two competing visions are largely
incompatible.

From the U.S.
point of view, it would be a geo-strategic disaster if Britain
leaned toward Brussels rather than Washington. The most prominent
casu­alty of a fully developed EU Common Foreign and Security
Policy would be the Anglo-U.S. special relationship, forcibly
consigned to the scrap heap of history. America's closest ally
would be unable to operate an independent foreign policy and stand
alongside the United States where and when it chose to do so. The
consequences for America would be hugely damaging.

For Britain,
there is much to lose from a weakening of the Anglo-American
alliance-the further loss of national sovereignty, the diminishment
of British glo­bal power and influence, the loosening of
defense and intelligence ties, and a weakening of the close-knit
financial, trade, and investment relationship.

For both U.S.
and U.K. policymakers and politi­cians, the defense of the
Anglo-American special relationship should be a top priority. On
the U.S. side, public diplomacy in the U.K. should be greatly
stepped up by the Bush Administration. Little has been done so far
to effectively project and commu­nicate America's foreign
policy message to British and European audiences. In London, the
Blair gov­ernment must do more to explain how the alliance with
America enhances Britain's national security rather than undermines
it, and why the special rela­tionship is a two-way street that
brings Britain huge benefits. At the same time the British
government should not seek to undermine the alliance with America
by supporting further political or defense integration in
Europe.

Britainand the Rise of Islamic Extremism. The 2005
London bombings and the thwarted 2006 air­line attacks prompted
growing awareness within Europe regarding the threat posed by
homegrown Islamic militants working in conjunction with
for­eign al-Qaeda terrorists. The British intelligence
ser­vice MI6 believes that there are 400 to 600 al-Qaeda
terrorist suspects in the U.K., some of whom have been trained in
camps in Afghanistan and Paki­stan.[36] Although the London
bombings were car­ried out by British-born terrorists, the
bombers were almost certainly part of a larger international
network. The latest evidence suggests the attacks were probably a
sophisticated al-Qaeda operation, masterminded by experienced
international opera­tives with local extremists acting as foot
soldiers.

The scale and
complexity of the problem involv­ing young Islamic extremists
in Britain was high­lighted in a major British Foreign
Office/Home Office study, "Young Muslims and Extremism."[37]
Terrorist organizations such as al-Qaeda have found a fertile
hunting ground in the U.K., where half of Muslims are under the age
of 25, and where there is widespread opposition to the
U.S.-British-led war on terrorism.

The report
revealed that extremist groups are secretly recruiting
well-educated, affluent Muslims from British universities, in
addition to impover­ished, underachieving Muslims through
mosques and prisons. The British government study con­cludes
that "intelligence indicates that the number of British Muslims
actively engaged in terrorist activity, whether at home or abroad,
or supporting such activity is extremely small and estimated at
less than 1%." This translates, however, into potentially 16,000
British Muslims out of a total population of 1.6 million. An
estimated 10,000 U.K. Muslims attended an extremist conference in
2003.

The study cites
a series of polls of British Muslim opinion on foreign policy
issues, which raise con­siderable cause for concern regarding
the loyalties of some U.K. Muslims in the global war on
terror­ism. While the vast majority of British Muslims
con­demned the 9/11 attacks, 15 percent supported them in a
November 2001 BBC poll. In the same poll, 80 percent believed that
military action against Afghanistan was unjustified, and 24 percent
approved of "British Muslims going to fight America and its allies
in Afghanistan."[38]

Another BBC
poll, in December 2002, showed that 44 percent of British Muslims
thought that fur­ther attacks by al-Qaeda were "justified on
grounds that Muslims are being killed by America and its allies
using American weapons." Fifty-six percent of respondents stated
that the USA and its allies were unjustified in blaming Osama bin
Laden's al-Qaeda group for the attacks in America on September 11.
Seventy percent of respondents disagreed with the view that "the
war on terror is not a war against Islam," and 26 percent of those
polled did not "feel very or fairly loyal/patriotic towards
Britain."[39]

The poll figures
make disturbing reading. While waging war against al-Qaeda
internationally, the United Kingdom must at the same time redouble
its efforts to defeat Islamic extremism on home soil. The U.K. has
for far too long provided a safe haven for Islamic militants from
across the Middle East and North Africa. Tougher anti-terrorist
legislation and stronger immigration and asylum laws are required
to help prevent further terrorist attacks on British cities.

The London
bombers were driven above all by an evil doctrine of hatred and
loathing, based on an extreme misinterpretation of Islam, which has
as its ultimate goal the destruction of liberal democracy across
the world, whether it be in the West or the Middle East, and the
establishment of a Muslim caliphate.[40] It is an ideology that
cannot be appeased or negotiated with, but which must be defeated.
The terrorist bombings in London, and the attacks of 9/11 in
Washington and New York, were not the consequences of U.S. or
British foreign policy, but part of an epic confrontation between
the forces of barbarism and the forces of civilization.

The British
government must pursue a policy of zero tolerance toward Islamic
extremism, which is a deadly threat to the fabric of British
society. Foreign Islamic clerics who preach violence and hatred
should be deported from Britain, and terrorist sus­pects must
be extradited to friendly countries that request it, especially the
United States.

Britain also
clearly needs a new generation of Muslim leaders, untainted by
association with or sympathy for Islamic extremism, and who are
proud of their British identity. They must be willing to condemn
terrorism unequivocally in all its forms, and help root out
extremists from Muslim commu­nities. Their role in helping
defeat Islamic terrorism will be invaluable.

Economic and
Political Trends in Russia

Fifteen years
since the inglorious fall of the Soviet Empire, Russia remains a
huge foreign policy chal­lenge for the United States. President
Vladimir Putin, hugely popular with the Russian people, has
successfully restored both economic and political stability to a
country that had been on its knees at the end of the last
millennium. As a mark of its growing confidence following soaring
oil prices, the Russian government repaid $22.5 billion to the
Par­is Club of creditor nations in August 2006, 14 years ahead
of schedule, eliminating one-third of its total $70 billion foreign
debt.[41] A resurgent and newly confident Russia
hosted the G-8 summit in St. Petersburg in July 2006.

With 27 percent
of the world's gas reserves, and 6 percent of global oil reserves,
Russia is now the world's second-largest oil exporter, and
state-owned Gazprom is the world's second-biggest energy firm by
market value.[42] Russia supplies one-third of Europe's gas
needs, and has accumulated foreign currency reserves of $277
billion (the third largest in the world). Russia currently has a
balance of pay­ments surplus of $100 billion, or 12 percent of
GDP.[43] Russia's Stabilization Fund, established
as a safeguard against a financial meltdown, is now worth nearly
$80 billion.[44] Foreign investment is pouring into the
country, attracted by a well-educat­ed, skilled, and relatively
cheap workforce, helping fuel an annual growth rate of over 6
percent. FDI in the first half of 2006 amounted to $14 billion,
near­ly equal to the total for the whole of 2005.[45]

Russia's
revival, however, disguises some major long-term economic problems.
The economy is heavily dependent upon oil and natural gas
reve­nues, and will be hit hard by any significant drop in oil
prices. Demographic trends also militate against an optimistic
long-term economic prognosis for the Russian economy. Russia's
population has fallen by six million since the collapse of the
Soviet Union and now stands at 143 million. With its population
dropping by 700,000 a year, The Economist predicts there
will be fewer than 100 million Russians by the middle of the 21st
century.[46]

Leading
demographics scholar Nicholas Eber­stadt has observed that
"Russia's current depopula­tion bears all the trappings of a
"demographic shock," reflecting abrupt and violent changes in the
nation's vital rates in the immediate wake of a momentous,
system-shattering, historic event. This shock is probably not just
a temporary disturbance: There are good reasons to believe that
Russia's pop­ulation trend defines a new norm for the
country."[47] Eberstadt notes that Russia has a
staggeringly high death rate of 170 deaths for every live 100
births, in contrast to the European average of 103 deaths for every
100 births.[48] Russia's male life expectancy has fallen
by five years since the 1960s, and now stands at just 59,
comparable to that of many Third World countries.[49] According to the
World Health Organi­zation, Russia ranks 127th in the world in
terms of global health care standards.[50]

Political
considerations also weaken Russia's long-term market appeal.
Investor confidence will be ulti­mately harmed by the
increasing heavy-handedness of the Kremlin. Russia has not quite
returned to the dark days of Soviet-style totalitarianism, but it
is increasingly an authoritarian regime that acts ruth­lessly
to protect its interests-what the Financial Times calls "a
managed democracy."[51] Unlike during the Cold War, Russians have
freedom to travel abroad and benefit from the fruits of global
capitalism. Few Rus­sians are willing, though, to openly
confront the iron fist of President Putin's leadership.

Putin has
weakened the powers of parliament, sti­fled the media, neutered
the power of regional gov­ernments, and reduced the
independence of the judiciary. Businessmen who pose a challenge to
Rus­sia's political elite have had to face the consequences.
Mikhail Khodorkovsky, once the head of Russia's fore­most oil
company, Yukos, now resides in a Siberian prison camp.[52]
Non-governmental organizations, especially foreign groups, have
faced a huge crack­down. Freedom House ranks Russia 168th out
of 192 countries in terms of political rights, while
Transpar­ency International places Russia 126th out of 159
nations in its ranking. In terms of judicial indepen­dence, the
World Economic Forum puts Russia in 84th position out of 102
countries, and ranks it 88th out of 108 for property rights.[53]

As Vice
President Dick Cheney noted in his pow­erful remarks to the
2006 Vilnius Conference:

In Russia today,
opponents of reform are seeking to reverse the gains of the last
de­cade. In many areas of civil society-from religion and the
news media, to advocacy groups and political parties-the
govern­ment has unfairly and improperly restricted the rights
of her people. Other actions by the Russian government have been
coun­terproductive, and could begin to affect re­lations
with other countries. No legitimate interest is served when oil and
gas become tools of intimidation or blackmail, either by supply
manipulation or attempts to mo­nopolize transportation. And no
one can justify actions that undermine the territorial integrity of
a neighbor, or interfere with democratic movements. Russia has a
choice to make. And there is no question that a re­turn to
democratic reform in Russia will generate further success for its
people and greater respect among fellow nations.
[54]

While flexing
muscle at home, Putin is also project­ing power abroad. Even
with nuclear weapons, Rus­sia's days as a global superpower are
long gone. Russia still, however, ranks as one of the four most
powerful countries in the world in terms of global power
pro­jection after the United States (the others are Britain,
France, and China). And she is increasingly aligning herself with
America's biggest enemies, including Mahmoud Ahmadinejad of Iran
and Venezuela's Hugo Chavez. This is part of a broader strategy to
strengthen Russian strategic influence on the world stage. Moscow
is helping to build Iran's $1 billion nuclear reactor at Bushehr,
and in December 2005 agreed to a $1 billion arms sale to Tehran,
including $700 million worth of surface-to-air missiles. Russia
sold the Iranian regime $2.7 billion worth of arms between 1994 and
2004.[55] Russia recently signed a $3 billion deal
with Venezuela to supply 24 Su-30 advanced fighter jets, as well as
53 helicopters- despite strong objections from Washington.[56]

Washington is
right to be concerned by develop­ments in Russia. While it is
an increasingly impor­tant market for Western goods and
investment, Russia remains a strategic competitor and is
evolv­ing into an energy superpower with pretensions of
grandeur on the world stage. Moscow's growing military support for
Tehran and Caracas does not bode well for the future. In addition,
strongman President Putin's departure in 2008 may give way to an
even more authoritarian regime in the Kremlin, further reinforcing
the need for the United States and other Western allies to maintain
the pressure for reform and human rights in Moscow.

Conclusion

Europe is a
continent in great transition, uncer­tain of the course it must
take in the 21st century. There is a battle taking place for the
heart and soul of the future of the European Union. Europe can move
in one of two directions-toward the creation of an artificial
superstate, a political rival to the United States, or it may
return to a Europe of nation-states, where national governments
retain control of foreign and domestic policy. At the moment,
Europe is somewhere in between.

Unfortunately,
despite the rejection of the Constitu­tion, the pendulum is
swinging toward closer integra­tion. Increasingly, the EU is
acting as a common entity on the international stage, whether it be
at the United Nations, in negotiations with Iran, or in
intervention in the Israeli-Hezbollah conflict. This does not mean
that Europe is united-far from it-but there is undoubtedly a
growing willingness to develop con­sensus positions on big
international issues.

Nothing is ever
certain in history. The drive toward ever-closer union can still be
halted. A great deal will depend upon how Britain moves with regard
to Europe if the largely Eurosceptic Conser­vative Party takes
the reins of power in 2009 or 2010, the year of the next British
election. Britain, Poland, the Baltic states, and the Scandinavian
countries may form a counter-weight of power within the EU to the
dominance of Germany and France. Possible Turkish entry to the EU a
decade from now would fundamentally alter the nature of the
organization, and would greatly complicate the creation of a united
political entity in Europe. Fur­ther, economic problems in the
eurozone could prompt defections from the single currency. Italy
would undoubtedly be the first to jump ship if the euro hit an
iceberg.

Economic
integration is essentially a politically driven project, and any
crack in the edifice of the single currency would have huge
implications for political integration. It is no coincidence that
the most successful economies in Europe today-Brit­ain,
Switzerland, Norway for example-remain outside the eurozone.

In other words,
there is still all to play for in Europe. The continent faces a
stark choice between a Europe based around the principles of free
mar­kets, free trade, limited government, national
sover­eignty, and decentralized power, and a federal Europe
that worships at the trough of socialism and supra-nationalism. It
is to be hoped that Europe will choose the former, a formula that
worked for centu­ries as a recipe for success for Europe's
great powers.

It is not only
the future of Europe that is at risk, but also the future of the
Anglo-American special relationship, NATO, and the broader
transatlantic alliance. The United States has a stake in the future
direction of Europe and must develop a coherent strategy toward
Europe that reflects fundamental U.S. interests.

Nile Gardiner is Director
of the Margaret Thatcher Center for Freedom at The Heritage
Foundation. This lecture was delivered at the Durell Colloquium on
"The Role of Markets and Governments in Pursuing the Com­mon
Good" at Hillsdale College's Center for the Study of Monetary
Systems and Free Enterprise, in Hillsdale, Michigan, on October 28,
2006.

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The European continent faces a stark choice between a Europe basedaround the principles of free markets, free trade, limitedgovernment, national sovereignty, and decentralized power, and afederal Europe that worships at the trough of socialism andsupra-nationalism. The U.S. policy must support a Europe ofnation-states.

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